Dormant Company

The word "Dormant" means something that is temporarily inactive. So, the term "Dormant Company" means a Company that is currently inactive. 

As such the Companies Act, 2013 does not define the term "Dormant Company". It states that a company can obtain the status of  'Dormant Company' by making an application to Registrar of Companies. 

Earlier, in the Companies Act, 1956, only the Registrar of Companies  had the power to change  the status of any company as a  "Dormant company" based on their filing status. But, in the new Companies Act, 2013 the companies have been given an option to convert their status as Dormant Company, subject to the approval of the ROC.

The application to change the status of a company to Dormant company must be made in e-Form MSC-1 to the concerned Registrar of Companies.

Who can apply for the status of a Dormant Company?

1. A Company which is formed for a future project.
2. which is formed to hold an asset or intellectual  property.
3. which does not have significant accounting transaction.
4. Inactive company.

What is an "Inactive Company"?

A Company which has not been carrying on any business or operation, or has not made any significant accounting transaction during the last two financial years, or has not filed financial statements and annual returns during the last two financial years;

What is "Significant Accounting Transaction"?

“Significant Accounting Transaction” means any transaction other than

• payment of fees by a company to the Registrar;
• payments made by it to fulfill the requirements of this Act or any other law;
• allotment of shares to fulfill the requirements of this Act; and
• payments for maintenance of its office and records.

By reading the above definitions, it becomes clear that a Company which has not been carrying on any business, will be treated as an Inactive company and they can voluntarily apply for the status of Dormant Company. 

Procedure for obtaining status of Dormant company 

• Hold a Board meeting and obtain the approval of the Board of Directors for converting the status of the company into a Dormant Company
• Hold a General Meeting and pass a Special resolution or obtain the consent of 3/4th in value of Shareholders of the company. (i.e., people holding 75% of the paid up capital)
• A certificate must be obtained from Auditor and Statement of Accounts must be duly certified by the Auditor
• The Special resolution must be filed in e-form MGT-14 and the e-form MSC-1 must be filed for application for Dormant company.

On obtaining the approval from ROC, the company will be issued with a Certificate stating that the company is a Dormant company by the ROC.

The ROC will maintain a register of Dormant Companies under the Ministry of Corporate Affairs portal or any other website which will be notified by the Central Government.

The ROC also has the power to change the status of any company as a Dormant company. When a company has not filed the Annual Return and Financial Statements for two consecutive financial years, the Registrar will issue a notice to the company and enter the name of such company in the Register of Dormant Company.

What are the benefits of becoming a Dormant company Voluntarily?

The list of Compliance for will be limited to the following :

• A dormant company shall have a minimum number of three directors in case of a public company, two directors in case of a private company and one director in case of a One Person Company
• Rotation of Auditors for the company is not applicable to Dormant Company. ie., the company can have the same Auditor for any number of years.

Thus the benefits of becoming a Dormant company reduces the cost of compliance, when the company is not carrying on business. 

Conversion to Active company from Dormant Company:

A Dormant Company can restore its status as Active Company on filing an application in Form MSC-4 to the concerned Registrar of Companies.  
This requires the approval of the Board of Directors.

To obtain the status of Active company, the company should have filed the Annual return in MSC-3 for all the years during of being a  Dormant company. 

Other points to be noted: 
A company can be a Dormant company, for a period of 5 years, after which it has to either convert itself into an Active company or it should  apply for Striking off.

If the company did not convert itself into an Active company after 5 years, the ROC on its own can initiate the process of Striking off the company.

Conversion to Dormant company doesn't give any immunity to the company from filing the forms relating to the changes happening in the company, such as Appointment or Resignation of Directors.

Thus, in this article, the conversion to/from dormant company has been explained, along with the compliance to be followed.
It is believed that, this benefit of voluntary conversion to Dormant company will reduce the compliance cost of the company.